Monday, April 26, 2010

SUMMARY:- Sellers try to sell early but have no stomach for it and the buyers push the indices to new rally highs.- Greece knuckles under, calls in the IMF (meaning you and me).- FOMC members feel it is time to start selling over $1T of mortgage securities.- March Durable Goods Orders weighed down by lack of airplane sales.- March new home buyers take advantage of expiring credit, spiking sales 27%- HHS report pegs national healthcare at hundreds of billions more than expected with millions losing their insurance, and hospitals closing.- SEC or SEX? Your tax dollars viewing porn.- Volume finally shows up, but after two months of gains it is not necessarily the good thing some suggest.- Leadership continues to find a way as money continues to find its way into the market.

Sellers tried their hand again this week but were beaten back with new rally highs.

There was way too much information in the market on Friday, and not all of it had to do with the market. There were the usual issues with Greece, the economy, the Fed, and earnings; but there was other news that was frankly disturbing. The Medicare actuary said that the newly-passed healthcare bill will cost hundreds of billions of dollars more than anticipated. There will be hospital closures because they won't be able to make the bottom line with their expenses and the cost structures that are laid out. Then there was news from FCC, those guardians of our dollars who go after the Bernie Madoffs and corrupt bankers. In the midst of trying to pass a 1600-page bank regulation bill, we find out they are spending their time and taxpayer dollars watching porno sites and spending eight hours a day doing this. One fellow visited the sites 1800 times in two weeks. That is your money at work. We put our trust in the government to do the right thing and be the watchdogs for us. We concede our liberties to them and trust they will take care of us, and we need to rethink that position because it never works. That is why we set up the kind of country we did with checks and balances (that we are giving away). Of course, I digress.

The market was somewhat in trouble until the morning. It was not in dire straits but was just ready to open lower. It bounced around through the morning. Then the dollar started to fall back, and that gave stocks a boost. They rallied up to the close with all of the indices closing positive and pushing to new rally highs. They were led once again by the best rallying sector of all: The small caps. An incredible uptrend, never got in trouble. It didn't stall out as did many of the large cap stocks. It just kept trucking. SP500 hit a new rally high as well, pushing through the high of just over a week ago. It was an important move for the SP500 because it had undergone a week of some churn, as had the other large cap indices. High volume and an inability to move further at the top of the run is a warning sign. It was good to see it push through, and now we will see if it holds the move into next week and keeps things going. The stock market ended the week on a very positive note and looks to be in good shape once again.

OTHER MARKETS.

Dollar. The dollar started the day strong, but it was not able to hold that gain at least against the basket of currencies on the DXY0. It did finish lower against the Euro after starting stronger on the day (1.3369 Euros versus 1.3291 Thursday). As the dollar reversed, the stock market seemed to pick up momentum toward the end of the day. It was also stronger Friday morning before it reversed. The dollar is still in good shape because it rallied back. It was in trouble over the last three weeks, but it has broken back up and looks solid. It had a boost of last week because of the issues in Greece. On Friday there was a reason that the dollar reversed after starting stronger: Greece finally gave in and asked the IMF to bail them out because the austerity programs were not being well-received by the market. Of course they are not. Every time the Greek government announced a modest (at best) austerity package, the pension holders and workers had strikes and rioted in the street. The market was not too sanguine about what Greece was trying to do, because it knew it would not fly with the workers. After Greece initially said it wanted IMF help and the dollar surged, things calmed down and the dollar faded. It is still in decent shape, but it sold back on the session.

Bonds. Bonds in the US finished weaker; in other words, they sold and pushed yields higher (US 10 year 3.82% versus 3.77% Thursday.) Bonds surged in the US off this low based upon the weakness building in Greece. It came out this week when the Greek bond market imploded and yields surged and their bond curve inverted. That means the short end including the 2 year note held a higher yield than the long end. In other words, money had no value down the road in Greece because they thought things would get worse. That inversion is a sign of economic recession at the least.

The government came to its senses and thought it better get money now before things get out of hand. That helped ease some of the pressure on the US dollar because everyone said at least the IMF is in there now and will help. We will see. Our bond market tells us the story is not over because bonds rallied off their lows on Friday. We know there are still skeptics in the bonds market, and you can see that when looking at the pattern. Bonds were also hit because at least half of the FOMC members think it is time for the Fed to start selling its $1.25T in mortgage-related assets. It is time to start clearing the books. It may not be the same thing as tightening, but it has that effect as it tends to drive rates higher because it makes what they are holding worth less. Bonds struggled and sold and yields rallied in the US on Friday for those two reasons: the IMF going into Greece, and more indication that the US Fed will embark on a tighter money policy. That has to happen, and it is one of the reasons bonds have been trending lower since December. The rally over the last few weeks was due almost directly to worries of failure in Greece. We will see if that changes now that the IMF is in. It also didn't hurt that Russia had a successful bonds auction for the first time in about ten years. Iceland had its credit rating increased by Moody's. Iceland was one of the first banking systems to collapsed, and the raised credit rating may help. You cannot help but think that maybe Moody's was feeling sorry for Iceland due to the volcano. It was raised, but no one takes much stock in credit rating agencies right now.

Oil. Oil is bouncing back nicely. It sold off at the first of the week and the end of the prior week. It broke back down in its trading range, but that was short lived. It bounced back up and had a big day on Friday. ($85.10, +1.40). It is back out of the trading range. It had a test, something of an ABCD pattern, and has taken back off. There is the impulse move, the ABCD, and just when it looked like it would dive, it reversed and moved back up. That is what the ABCD pattern does for you. Oil is moving to the upside, it is back out of its range, and is looking like it will continue higher into the summer. We will have the 3.00 a gallon gas prices, don't worry, folks. I know you are all relieved to hear that.

Gold. Gold rallied on Friday as well ($1,156.40, +13.50). It has been basing. It sold back a little over a week ago, it has recovered, and it has cleared this important peak in March making a higher high. Gold has also set up something of an ABCD pattern. There is the impulse move, ABCD, and now it is moving back up. Gold looks good. There is a lot of inflation out there you cannot have this kind of money out there without inflation. That is why the Fed says it will have to start tightening the old belt again. Even as the Fed spoke, gold still rallied. You think people are not exactly believing that the IMF is going to handle Greece and that the US is going to be able to prevent inflation? There are doubts, and I am sure you are shocked to hear that.

The other markets have been impacted all week by what has been transpiring here as well as overseas. It has been a fascinating week with respect to what China said on slowing its economy, what the Fed is talking about with tightening its belt, the Greece situation, and the other countries that are as close as Greece to having serious financial issues. This is as close right now as we were in the second half of 2008 to having a selloff. We are not out of the woods by any stretch. You have to be careful and keep an eye on what is ahead. When the stock market continues to move higher with all the money in it, being careful means keeping your money at work right now.

Breadth. Breadth was bland just as it was on Thursday with a 1.7:1 advancers over decliners on the NASDAQ. With the SP600 in the lead on the NYSE, there was a 2.5:1 ratio. Very solid advance on the NYSE with the small caps leading the way and punching out new highs once more.

Volume. Volume fell off 10% on NASDAQ, but it was still solid at 2.35B. Volume fell on the NYSE as well, but it was at 1.2B. Still very respectable by all accounts. A lot of folks on the financial stations said it was nice to see the volume come in this week, and that is nice if things are moving up. They did move up but, over the past couple of weeks, the volume has been up but the market has not moved anywhere. That is the churn I was talking about where it is unable to make the new highs and unable to continue to the upside. You have to worry about that. High volume when the market cannot move higher after a strong run (as we have seen since the start of February) means stocks are trading hands a lot. It makes sense because the market is not going up, but there is a lot of volume. That means a lot of trading is going on, but the buyers and sellers are just trading hands no one is taking charge. The buyers have led all the way up because the market has rallied. There were more buyers than sellers. Now over the last week or two they were equal. One day the buyers would win, then the next the sellers would win and vice versa. That is a change from just the solid upside where the buyers were clearly in control. Since the volume was higher, that shows the sellers were more active; indeed, we saw them come into play on Wednesday and Thursday. They sold the market off on Thursday, but the market turned back up and the buyers won the day. And the buyers actually won the week because all of the indices broke to new rally highs on Friday and they did so on solid volume. Not increased volume, but still solid. That is a positive, and there is no writing around that. Despite the chop, the market finished to the upside with new rally highs. You cannot complain about that.

CHARTS

SP500. SP500 broke to a new rally high after nearly two weeks of lateral movement on high volume. There was some churn and distribution but also some buying. The buyers came back on Thursday and pushed the market higher, and then they broke it to a new rally high on Friday. Clearly the buyers were in a bit of trouble and the sellers exerted themselves somewhat. They tried to take control, but they were rebuffed and the buyers won the day on the SP500. They won the day and the week on NASDAQ as well.

NASDAQ. NASDAQ broke to a new rally high itself. Volume was no great shakes on Friday, but it was still above average. When you look at the Thursday reversal where it started lower, tested the 18 day EMA, and then reversed to positive, there was very strong volume. There was a very strong move and it is continuing on NASDAQ with the break to the new high. Everyone wants to look for the market to sell. We had "just in case" downside plays because it looked like the market was getting ragged. But every time the market gets ragged, the buyers come in because there is so much liquidity in the market. The Fed has not pulled it out yet. Until the Fed does pull it out or is talking about it on a daily basis, the market is still going to try to overcome the sellers and continue higher.

SP600. Stellar performance. All week there were new highs. It started with a bit of trouble but reversed intraday on Monday. Then it was higher Tuesday, Wednesday, Thursday and Friday. Impressive, impressive and did I say impressive? The small caps are leading, and that is a good barometer for the economy. There is no arguing about that as well. You can complain about it all you want, you can say this recovery is not a good recovery or as strong as others in the past. And you will be right. But things were so bad at the bottom that they could only improve. Any improvement from zero is a positive. For now, the momentum is up. We have seen earnings reports continue to come in strong with 70% of those reporting having beaten on the revenue side. In other words, there were increased sales. 85% have beaten on the bottom line, and that means earnings. That is much higher than historic norms. The momentum is there for profits with low employment levels in other words, high productivity and feeling the need to higher. The market thinks that the companies will be able to maintain those high profit levels for the next few quarters. Thus the small cap index continues to rally higher.

SOX. The semiconductors were somewhat of a laggard on Friday. They were up, but it was not quite 0.4%, and not the strong move you saw in most of the other indices. I am not overly worried about that. There was the gap higher a week and a half ago on the INTC earnings that was filled. It has moved up since then, and there are a lot of great-looking stocks in the SOX (and we own some of them). I feel decent about those and the prospects of this index. It is not overbought, and a lot of the stocks are in excellent position to move higher.

In sum, the sellers did try to influence the market. They put their cards on the table Wednesday and Thursday, and they did it the Friday before. Each time, however, the buyers were able to snatch victory from the jaws of defeat. The sellers were bluffed, they folded, and the buyers won and the market rallied. Even though volume was higher and there was churn, the buyers still outnumber the sellers. They are pushing the indices higher based upon the outlook now for the future that they still view as positive.

LEADERSHIP

Semiconductors. Semiconductors had a great week. LRCX broke higher on its earnings and continued the move on Friday. Very solid action. NVLS had a solid week, too; a modest gain on Friday, but a very good week. It broke higher already. There were a couple of strong moves, and it had good earnings. It was treated favorably on its earnings as well. The chips are strong, they are not overbought, and they still have plenty of room to run.

Retail. Retail was solid as Sears remember that old commercial? SHLD is exploding higher. We are letting those positions run. It doesn't report earnings until mid-May, so I want to just let them go. Impressive across the board in retail. ANN broke higher again on Thursday and gapped up higher on Friday. The strong get stronger. BBBY broke higher again last week and at the end of the week as well. Really all week long it was up, Tuesday through Friday, hitting new highs as it goes. Impressive strength in retail across the board. FAST is breaking higher as well. It is not a consumer retailer, but it is a retailer to the industrial and construction sectors.

Metals. Metals are still struggling. Copper is not looking good, and that is what I refer to as an ugly pattern. Steel is not looking good either. MT is not strong. The industrial metals are changing up a bit. TIE was able to rally back at the end of the week. It had a double top and looked like it could be trouble, but it might be trying to salvage itself.

Financials. Banks had a tough week, but JPM is not out of the picture. Maybe there is an ABCD pattern setting up. It is holding at the 50 day EMA and tapping there. GS is still struggling. It bounced some and is heading back down to end the week. Regional banks are decent and still holding up well in their uptrend. FITB is holding its gains, just not really strong now. It has been a tough week for banks. I would be happy being able to make it through with the uptrend in good shape.

Industrials. Industrials are mixed but looking good. CAT pulled in a new rally high. CMI had a new rally high. BUCY didn't have a new rally high, but is not in terrible shape even though it had a rough week. TEX had a nice week, and I am glad to have some of that on board. Very solid breakout, nice test, and rallying back up. Even those that have lagged are firming up a bit and helping out with other areas that have been powering higher.

Technology. AAPL surged higher on earnings Wednesday, it surged higher on Thursday, and it put in a more modest 1.5% gain on Friday. As AAPL put in that new high, it surpassed MSFT in market cap not in all the shares, but in publicly traded shares. MSFT has a lot of shares that it holds in reserve just for its owners, and it has a lot of treasury stock that is not publicly traded. Nonetheless, on publicly-traded shares, AAPL is now the market-cap king. It is kind of ironic. Years back AAPL was on the verge of going under and MSFT invested 100M dollars to keep it going because the Macintosh was not doing well. There was no iPod, there was no iPhone. When the iMac came out, it was a game-changer for AAPL. The Pirates of Silicon Valley is a fun movie to watch. It would be interesting to see a sequel to that as Steve Jobs has finally learned his lesson and is not so trusting of guys like Bill Gates. You can say he stabbed him in the back or just took advantage of poorly-worded contracts and too much trust from AAPL. For AAPL followers, they are happy to see it because they always felt AAPL was better. And they do make better products. I digress, but that is an interesting story. AAPL is flying to the moon. You have to be careful when a stock starts a ballistic move because it may be peaking out. That happened back in March. It went ballistic gapping and running higher as it is doing now, and all it did is consolidate laterally and then take off to the upside again. If AAPL continues higher, we will probably take more of our option plays off the table because there is huge gain in that. Then we will let it consolidate and see if it continues back to the upside.

Once again the VIX has found support at the support line it hit back in 2008 (and that acted as resistance well back into 2005-2007). It has held that level and it might bounce here. There is that possibility, but it is not in any nefarious mood. There are no higher lows higher lows as the market rallies means danger. The VIX hit a level that has, in the past, resulted in market pullbacks or corrections, but not a major collapse or rollover. There could be a correction here, a consolidation after a nice run, and breaks to new highs on the indices. It is not necessarily the case because we are not seeing the higher lows, and the market action continues to be very strong. VIX gives an idea what is going on, but does not trump market action.

VIX: 16.62; +0.15VXN: 16.6; -0.23VXO: 15.54; +0.09

Put/Call Ratio (CBOE): 0.71; -0.05

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 53.3%. The bulls are still running, up from 51.1%. Even with this move in the market, however, bulls are still off the 60% to 65% considered bearish. Many more bulls than in February, but they are not running away with the market and thus the market continues to rally. Not that this is a 'Green Zone' of safety; it is a level that can still spark a selloff as seen early this year. This move started at a low of 35.6% in February, the lowest it has been since July 2009. Over the 35% threshold level below suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 17.4%. Pretty precipitous decline in bear sightings, down from 18.9% last week. Well off the 27.8% level on the high of this leg in February and heading toward the 15% level that is bearish for the market. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Heading back toward the 16%ish on the lows of the leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +11.08 points (+0.44%) to close at 2530.15Volume: 2.349B (-10.12%)

Up Volume: 1.605B (-212.005M) Down Volume: 770.876M (-159.056M)

A/D and Hi/Lo: Advancers led 1.69 to 1Previous Session: Advancers led 1.65 to 1

There are a lot more earnings out next week, and a lot more economic data. We will have to keep looking at the Greece story to see what happens, and there a possibility that more news will come out over the weekend. The IMF is going to step in and put in almost $61B by May 19th. That calmed everyone down as evidenced by the market, and it should help in the week ahead as the market focuses on other things such as the economic data here in the US. What will the Federal Reserve say on Wednesday with respect to its rates? With this be the time that it removes the extended-period language? Likely. And we have to see what happens with respect to the initial jobless claims and whether the manufacturing reports from the various regions continue to improve. With the market breaking to new rally highs on Friday, we will have to see if they are able to hold on Monday. A lot of times a surge into the Friday close turns back and reverses some on Monday. There is no problem with that. Doesn't mean it will sell off; it just means we might get a test that allows us to pick up positions.

There are still stocks that are not overbought and are coming into leadership position or have rallied well and are just testing. We can deal with that. A healthy market shows rotation as money moves from one area to another. Right now the metals are in trouble. The money has moved out of them and is moving into other areas. We continue to see that happen. We just find where the money is going, looking for places that have pulled back or that are just now coming in to join the party. You always get concerned when laggards finally join the party because things could be getting overdone at that point. Again, with this much liquidity out there, and with the Fed still having its foot on the accelerator, so to speak, we will have the ability to move the market higher. Next week could be key if it does take out the substantial or exceptional-period language. Then the market could give back some of these gains as it girds itself for the Fed starting to raise interest rates. It will have to sell a bunch of the assets that it owns right now, and that will have the effect of raising interest rates. The Fed doesn't actually have to raise rates themselves it can influence rates simply by selling the over $1T of mortgage-based securities it purchased during the crisis. There will be intrigue next week, without a doubt, and it will have a lot to do with US interest rates and the money supply.

Has anything changed? Not really. It may change depending on how strong the Fed's wording is. For now, nothing has changed, and therefore our game plan has not changed. We will continue to do the same thing we have been doing. If a stock is in good position and shows a buy, we will buy it. If it runs higher and hits a target, we will take some profits. If it doesn't hold up we will get rid of it. It may reverse and run back up after a pullback, but we are not going to take that chance right now. The market is pretty extended. It keeps running and it always tends to run further than you think it will. When they turn they turn fast. We saw that last week. The sellers threw their hat into the ring, but it just got thrown right back at them after the buyers stomped on it.

At some point the sellers will be able to wrest control from the buyers. The higher-volume churn over the past week and a half showed there was some weakening in the buyers' position. Friday they tried to put an exclamation point after the gain saying they are still here and in control. That will last for awhile, and as long as it does, we will play it. But we will be ready in case it doesn't. That is why whenever there is trouble or we see something that looks improbable, we put some of those "just in case" downside plays on the report. If there is a reversal, it can happen very quickly and we want to be able to get in and make quick gains if it does. A lot of times that first move is a vicious one. It has to set up further downside as it clears out a lot of players. We will took for opportunity to the upside, we will take gain when we have it in hand, and we will protect the downside by not letting plays get out of hand. Even with the market moving up, money does tend to rotate. Some good sectors and stocks that were performing well may become the focus of sellers and profit taking and then undergo a correction. We can hang onto stocks that we have a lot of gain built up in, after we take some off the table. You do not want to do that with options. I hate to say it, but we are going to stay the course. As soon as I say that, the course may change. We will keep looking for plays that can make us money to the upside, and if things turn, we will play that. We will continue to take what the market gives. For now, it is giving to the upside as the path of least resistance. Have a great weekend and enjoy the spring weather.

Support and Resistance

NASDAQ: Closed at 2530.15Resistance:

2546 from July 2007

Support:The 18 day EMA at 24692453 is the August 2008 peak2412-2415 represents a series of peaks and lows in 2007, 20082382-2395 from 2008The 50 day EMA at 23892324-2370 is a range of resistance from early 20082320 to 2326.28 is the January high2319 from the September 2008 peak2292 is a low from January 20082273 to 2282 marks bottom of January 2010 lateral peak2275 - 2278 from the February 2008 and April 2008 lows2245 from July 2008 through 2260 from late 2005. 2210 (from September 2008) to 2212 (the July 2009 closing low)2205 is the November 2009 peak2191 is the October 2009 peak2177 is a low from March 2008The 200 day SMA at 21762169 is the March 2008 closing low (double bottom)2168 is the September 2009, intraday peak2167 from the July 2008 intraday low2155 is the March 2008 intraday low

S&P 500: Closed at 1217.28Resistance:1240 is the key July 2008 interim low.1293 from a March 2008 low1298 is the November 2008 rebound high that made a lower high. Also part of the Q1 2008 double bottom.

Support:1200 from the July 2008 lowThe 18 day EMA at 11951185 from late September 20081170 is the prior March 2010 highThe 50 day EMA at 11651156 is the Sept 2008 low1151 is the January 2010 peak1133 from a September 2008 intraday lowBottom of the January 2010 consolidation 1131 to 11361119 is the early December intraday high1114 is the November 2009 peak is breaking1106 is the September 2008 low1101 is the October 2009 high1084 to 1080 (September 2009 peak)The 200 day SMA at 10831078 is the October range low1070 is the late September 2009 peak1044 is the October 2008 intraday highThe August peak at 1040The early October 2009 closing low at 1025The early August intraday peak at 1018

Dow: Closed at 11,204.28Resistance:11,734 from 11-98 peak

Support:11,100 from the 7-08 lowThe 18 day EMA at 11,02410,963 is the July 2008 lowThe 50 day EMA at 10,78910,730 is the January 2010 peak10,609 from the Mid-September 2008 interim low10,496 is the November 2009 high10,365 is the late September 2008 low10,285 is the late December consolidation peak10,120 is the October 2009 peakThe 200 day SMA at 10,0759829 is the September 2008 closing high9918 is the September 2008 peak9855 is the early September peak in its lateral range9835 is the late September 2009 peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.